Why the Duvernay shale could be the next big thing

Encana and Shell among the companies investing in an emerging Alberta play

By Darren Campbell

July 22, 2011

When it comes to shale and tight gas plays, even casual observers of the petroleum industry have probably heard of the big U.S. reservoirs like the Marcellus and the Barnett. They may even be familiar with the Horn River and Montney basins in northeastern British Columbia. The same can not be said for the Duvernay shale play in central Alberta, where exploration is in the embryonic stage.

But the Duvernay has a lot going for it, as Calgary investment house Peters & Co. pointed out in a 40-page paper issued this week assessing the pros and cons of this emerging play. In Peters’ estimation, the pros are many. The big factor the Duvernay has going for it is that the development corridor, which currently consists of the Greater Kaybob and Greater Pembina areas, has good infrastructure and access to services. As oil patch veterans in Western Canada know, oil and gas development is old hat in this area. And that means large processing facilities are already in place and producers would have direct access to sales line. There would be little need to build expensive infrastructure to get Duvernay shale gas to market. That reality stands in contrast to B.C.’s Horn River basin, where the resource is huge (78 trillion cubic feet of marketable gas in place according to the National Energy Board) but the area is remote and infrastructure is lacking.

While production data has only been released from two horizontal wells drilled in the Greater Kaybob, the results have been encouraging. Production from each of the two wells has been reported at over 1.5 million cubic feet per day and the gas has been rich in natural gas liquids – an additional revenue stream that’s crucial to the economics of these shale gas plays because prices for the cleanest burning fossil fuel have remained low in North America.

I’ve always found it strange that as exploration for shale gas became so prominent in the U.S. and B.C., that Alberta’s Duvernay wasn’t attracting the same kind of interest. Maybe that’s because companies were too busy developing conventional natural gas and the oil sands. But since 2009, industry has spent $2.1 billion acquiring the rights to Crown land in the Duvernay and the big spenders include the likes of Encana Corp., Shell and Husky Energy.

It’s very early days for the Duvernay, so caution is in order here (as Steve LeVine wrote recently, buyer beware during a boom). But Alberta appears poised to join jurisdictions such as B.C., Texas and Pennsylvania in taking a ride on the Shale Gas Express.